Top Stories
ECB’s Villeroy: should not hold off first rate cut for too long
Global Banking & Finance Review®
Company
PARIS (Reuters) – There are several compelling reasons why the European Central Bank should not hold off for too long on an initial interest rate cut this year, ECB member and Bank of France head Francois Villeroy de Galhau said on Friday.
PARIS (Reuters) – There are several compelling reasons why the European Central Bank should not hold off for too long on an initial interest rate cut this year, ECB member and Bank of France head Francois Villeroy de Galhau said on Friday.
“It’s not a question of rushing into things; but acting gradually and pragmatically may be preferable to deciding too late and then having to over-adjust,” Villeroy told Belgian paper L’Echo.
Villeroy’s comments came in response to a question as to whether his position was to favour rapid interest rate cuts and then follow with a moderate easing of monetary policy over waiting longer and having to then cut rates more aggressively.
Asked about the pace at which the ECB could further ease its monetary policy once it made the first cut, Villeroy replied: “We will remain guided by the data, and in my sense there will not be any question of giving a new ‘forward guidance’.”
Villeroy added the ECB had “three degrees of freedom” regarding its future monetary policy, namely the timing of the first rate cut, the pace of further monetary policy easing afterwards and then the level to which rates could fall.
“The fact that we have these three degrees of freedom could be another argument as to why we should not hold off for too long the first cut,” he said.
In January, the ECB kept interest rates at a record high of 4%. On Thursday, ECB President Christine Lagarde said the ECB had to avoid cutting rates too early because that could prolong high inflation and even force the bank to tighten policy again.
(Reporting by Sudip Kar-Gupta and Mathieu Rosemain; Editing by Jamie Freed)
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates in an economy to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the amount borrowed or saved. They are a key tool for central banks in managing economic activity.
The European Central Bank (ECB) is the central bank for the euro and is responsible for monetary policy within the Eurozone. It aims to maintain price stability and oversee the banking system.
Economic growth is the increase in the production of goods and services in an economy over a period of time, typically measured as the percentage increase in real gross domestic product (GDP).
Forward guidance is a monetary policy tool used by central banks to communicate their future policy intentions regarding interest rates to influence the economic decisions of households and businesses.
Explore more articles in the Top Stories category
